Pursuant to a congressional request, GAO provided information on the tax
compliance of U.S. citizens residing in foreign countries, focusing on:
(1) whether it is possible, given available data, to estimate the
prevalence and revenue impact of nonfiling among U.S. citizens residing
abroad; (2) factors that may limit the Internal Revenue Service's (IRS)
enforcement of the filing requirement or otherwise contribute to
nonfiling abroad; (3) IRS' recent initiatives to improve the filing
compliance in this population; and (4) the Department of the Treasury's
study on the income tax compliance of U.S. taxpayers residing abroad.

GAO noted that: (1) IRS has not estimated the overall prevalence of
nonfiling abroad or the resulting loss of tax revenue, and the data GAO
identified in its review were inadequate to support reliable quantified
estimates; (2) data on the number of U.S. taxpayers residing abroad and
the number of returns they file are of uncertain reliability, and the
amount of taxes that nonfilers would owe if they were to file is
unknown; (3) one recent IRS initiative, however, focused on certain
Mideast countries and identified enough nonfilers and additional tax
revenue that IRS believes there may be benefits to looking for
concentrations of nonfilers in other foreign countries; (4) GAO was able
to identify several factors that may limit IRS' enforcement of the
filing requirement or otherwise contribute to nonfiling abroad; (5) some
of these factors are beyond IRS' control; (6) the income of U.S.
citizens residing abroad is generally not subject to U.S. tax
withholding or information reporting if it is derived from foreign
employers or foreign financial investments; (7) IRS data show that tax
withholding and information reporting by employers or other income
providers resulted in much higher rates of tax compliance than when
neither system is in place; (8) IRS generally cannot collect unpaid
taxes from assets that have been transferred to a foreign country; (9)
the enforcement actions that IRS uses in the United States have no legal
standing in most foreign countries; (10) although IRS obtains passport
data from the Department of State, it has made little use of these data;
and in recent years, IRS has not attempted to penalize the large number
of applicants who fail to furnish a social security number (SSN), as the
law provides; (11) IRS has no systematic way of capturing a passport
applicant's country of residence and occupation, which could provide
demographic data on foreign concentrations of U.S. citizens and help IRS
distinguish them from tourists; (12) the instructions for filing form
1040 are potentially misleading and may cause some taxpayers residing
abroad to erroneously conclude that they have no obligation to file;
(13) IRS' recent initiatives concerning nonfiling abroad include a
special project in the Middle East that was initiated as a result of
events related to the Desert Storm War and a data-gathering effort to
identify other potential concentrations of nonfilers residing abroad;
and (14) in fiscal year 1997, IRS began to gather foreign census and
other demographic information on U.S. citizens residing abroad to
identify other countries where similar compliance efforts may be
beneficial.